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Liquidity in Frictional Asset Markets

Listed author(s):
  • GUILLAUME ROCHETEAU
  • PIERRE‐OLIVIER WEILL

On November 14-15, 2008, the Federal Reserve Bank of Cleveland hosted a conference on “Liquidity in Frictional Asset Markets.” In this paper we review the literature on asset markets with trading frictions in both finance and monetary theory using a simple search-theoretic model, and we discuss the papers presented at the conference in the context of this literature. We will show the diversity of topics covered in this literature, e.g., the dynamics of housing and credit markets, the functioning of payment systems, optimal monetary policy and the cost of inflation, the role of banks, the effect of informational frictions on asset trading.

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2011.00435.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): (October)
Pages: 261-282

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:261-282
DOI: j.1538-4616.2011.00435.x
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  2. Dimitri Vayanos & Tan Wang, 2004. "Search and endogenous concentration of liquidity in asset markets," LSE Research Online Documents on Economics 455, London School of Economics and Political Science, LSE Library.
  3. Guillaume Rocheteau & Randall Wright, 2004. "Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium," Working Paper 0405, Federal Reserve Bank of Cleveland.
  4. Alessandro Gavazza, 2011. "The Role of Trading Frictions in Real Asset Markets," American Economic Review, American Economic Association, vol. 101(4), pages 1106-1143, June.
  5. Ricardo de O. Cavalcanti & Ed Nosal, 2007. "Counterfeiting as private money in mechanism design," Working Paper 0716, Federal Reserve Bank of Cleveland.
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  8. Thorsten Koeppl & Cyril Monnet & Ted Temzelides, 2006. "A Dynamic Model of Settlement," Working Papers 1053, Queen's University, Department of Economics.
  9. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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  13. Jianjun Miao, 2006. "A search model of centralized and decentralized trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 68-92, January.
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  15. Dimitri Vayanos & Pierre-Olivier Weill, 2008. "A Search-Based Theory of the On-the-Run Phenomenon," Journal of Finance, American Finance Association, vol. 63(3), pages 1361-1398, 06.
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  20. Ricardo Lagos & Guillaume Rocheteau, 2007. "Search in asset markets: market structure, liquidity, and welfare," Working Paper 0701, Federal Reserve Bank of Cleveland.
  21. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Models," MPRA Paper 21030, University Library of Munich, Germany.
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  24. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
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  26. Gara M. Afonso & Hyun Song Shin, 2008. "Systemic risk and liquidity in payment systems," Staff Reports 352, Federal Reserve Bank of New York.
  27. Nicolas L. Jacquet & Serene Tan, 2007. "On the Segmentation of Markets," Working Papers 18-2007, Singapore Management University, School of Economics.
  28. Adam B. Ashcraft & James J. McAndrews & David R. Skeie, 2009. "Precautionary reserves and the interbank market," Staff Reports 370, Federal Reserve Bank of New York.
  29. Weill, Pierre-Olivier, 2011. "Liquidity Provision In Capacity-Constrained Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 119-144, April.
  30. Shouyong Shi, 1995. "Credit and Money in a Search Model with Divisible Commodities," Working Papers 917, Queen's University, Department of Economics.
  31. Coles, Melvyn G & Smith, Eric, 1998. "Marketplaces and Matching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 239-254, February.
  32. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  33. Margaret Stevens, 2007. "New Microfoundations For The Aggregate Matching Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 847-868, 08.
  34. Guillaume Rocheteau, 2009. "A monetary approach to asset liquidity," Working Paper 0901, Federal Reserve Bank of Cleveland.
  35. Stephen D. Williamson & Randall Wright, 1991. "Barter and monetary exchange under private information," Staff Report 141, Federal Reserve Bank of Minneapolis.
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  37. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
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  39. Daniel F. Spulber, 1996. "Market Making by Price-Setting Firms," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 559-580.
  40. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
  41. Curtis R. Taylor, 1995. "The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 837-855.
  42. Gara M. Afonso, 2008. "Liquidity and congestion," Staff Reports 349, Federal Reserve Bank of New York.
  43. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
  44. Guillaume Plantin, 2009. "Learning by Holding and Liquidity," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 395-412.
  45. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
  46. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2011. "Information and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 355-377, October.
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